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| Soladoye |
"MAXIMAZING CHANNELS OF DISTRIBUTION FOR INSURANCE PENETRATION"
2014 ANNUAL EDUCATION SEMINAR
of
The Chartered Insurance Institute of Nigeria.
Venue: Best Western Homeville Hotel, Benin City, Edo State.
1. INTRODUCTION
a) The Relevance of the Topic
"The potential for Insurance in Nigeria is of an alarming magnitude but the market is at the moment in a sorry state. It requires reconstruction from the ground to the last floor".
-Rodney Lester, Oct 2006.
Director, Non – Bank Financial Institutions.
World Bank
Nigeria Insurance Industry generates N1.5tr in 10 years - Chairman, NIA
85% of MTP Insurance in the hands of fake Underwriters - D.G, NIA
Mobile Insurance generates 100,00 subscribers daily - NICO
Maximising channels of distribution for Insurance penetration.
2. OPENING
a). Insurance Penetration
Deeper Insurance penetration can be achieved two ways:
Product - driven Growth strategy.
Success of Product – driven strategy is dependent on a formidable Channels strategy
Traditional, Microinsurance, Takaful
Diversification of product offering through various channels is therefore a matter of urgent necessity.
Income, cultural and religious disparity dictate the type of distribution channel of an Insurer.
The regulator must lay the groundwork for the distribution channels for each of them – Commercial, Social and Religious.
d) Why Create Distribution Channels
In essence;
Discounts should be given in lieu of commission
The enablers – learning, training, sales tools and technology also need to be put in place.
e) The Roles of the Insurance Distributor
Trusted financial advisor to the client
Trusted biz associate to the underwriters
Leveraging multiple distribution channels in a cost effective and customer friendly manner.
f) Regulation
Distributors of Insurance must be registered and regulated including professional education requirements
No National Insurance Producers Registry in Nigeria.
Only 2 types of Distributors recognised at Law – Agent and Brokers.
About 15,000 practicing agents, below 3,000 registered.
The number of Brokers to reduce to about 350 by December 2014
Nigeria operate with 3 Distribution channels each on the surface
87% of Insurance business is through the Wholesale Brokers.
95% of the P&C & GL are short-term, volatile high expense accounts
Product price reduces each year due to few available channels.
Business generation - "Scavenger Marketing"
Retail Market (170m people) – neglected
New Insurance (Mi, Takaful) – not enthusiastically explored
Alliance Markets (Bancassurance, Utilities, Retailers/FMCGs) – ignored
New, under-served and under-developed markets - Mortgage, Agriculture, SME, Derivatives – not explored
No single successful investment in premium retail in Nigeria (only deposit retail) because of short-term and big – ticket business focus.
g) Lesson 1
"What has made us great in the past will not continue to do so in the future. All companies need to ensure that as they grow, they do not lose the flexibility and agility they once possessed when they were small. In virtually every case where giants have lost their market dominance, a slow moving over-bureaucratic top heavy management system that distanced the decision makers from what is happening in the market place bears a significant part of the blame."
Nick Skellon
"Corporate Combat"
Punch July 20, 2014 – Insurance earn 1.5tr in 10 years (3rd Party)
No Nigerian Primary Underwriter Insurer among the 22 biggest in Africa (2010 - 2012)
No 86 in the world in Insurance density.
Also no 86 in Insurance penetration
Will there be NAICOM in 10 years time?
FSS2020 considered Consolidated regulation.
Need for NAICOM to do more in Channels Development and operators skills Development.
Allowing Multiple Distribution Channel is the flesh and future of NAICOM
4. PEER GROUP ANALYSIS
THE WARNING SIGNS
CBN Issued Circular Letter to cancel Bancassurance – July 2014
Group Life Assurance now at the employers discretion – Sec 4(6) PRA 2014
Confab – most others industries invited, not Insurance.
NDIC – to handle liquidation of Insurance companies - Newspaper rumour.
10 years of PENCOM - World Pension Summit - June 2014.
CBN 8th Annual MSME Conference 2014 – N220b Intervention Fund.
No of HCPs registered with NHIS – 4000 (2006), 7000 (2014).
Pension RSA A/c holders. – 900,000 (2006) to 6.0m (2014).
Pension Asset 0 (2006) to N4.5trn (June 2014)
No of individual life policyholders – below 1.0m.
Bank Branches – 3200 (2006) to 5639 (2013)
Insurance Branches, 523 (2006), 737 (2011)
Law – Review, don’t Repeal – PENCOM, NDIC, Brokers Law.
Twenty-two (22) Years of Narrow Business Focus (1987 - 2008) – Since SAP
The Numerous insuring opportunities that were not fully utilized since 1987.The National Health Insurance Scheme Act 1999 – Sec. 45 – No complimentary coverage
The Abuja Commodity Exchange – 1999 – Agric and Micro Insurance
The Nigeria Agricultural, Cooperative and Rural Development Bank (NACRDB) Recapitalization – 2000 – Agric and Micro Insurance
The Bank of Industries (BOI) Recapitalization of 2000 – Enterprise Properties
The privatization of NICON, NIG RE – government Accounts
The CBN Universal Banking Guidelines – 2001 – Bancassurance
The Small and Medium Enterprises Equity Investment Scheme Guidelines–2002–SME Ins.
The NCRIB Act 2003 –Market Penetration through Partner Broker
The Insurance Act – 2003 –Sections 64, 65, 67, 68 – 85% of MTP and clause C Marine Imports are fake.
- The SMEDAN Initiative – 2004 – Enterprise Property, Credit life and Key man Insurance.
The Pension Reform Act 2004, 2014 - Group Life, Annuity and Gratuity.
The Banking Consolidation Guidelines 2004 – Collaboration and Competition
The Insurance Consolidation Guidelines-2005 – Local Market Development
The Mortgage – backed Securities Initiative-2005 – Mortgage Insurance
The Micro Finance Bank Guidelines – 2007 and the Intervention Funds– Micro Insurance
The Capital Market Crash – 2008 - Insurance as certainty in un-certainty
All these Insuring opportunities under-utilized due to the absence of Diverse Distribution Channels - MDRI Introduction in 2009.
b). The Regulator
Obedient Regulator – Cash light, IRDA (India)
Interpretation of the Law - NAICOM, Sec. 17(1))c), 1A Sec. 78
More emphasis on supervision – Police/suspect relationship.
High cost of Agency Licence.
c). The Law and its Application
Too Restrictive – No Insurer shall – 40 times.
Hanging Provisions - Section 3, !A (2003) - Only authorization.
Only 2 Distribution channels – Insurance Regulated entities
" In the end, more than they wanted freedom, they wanted security. They wanted a comfortable life and they lost it all – Security, comfort, Freedom. When the Athenians finally wanted not to give to the society, but for the society to give to them, when the freedom they wished for most was freedom from responsibility, then Athens ceased to be free.
- Edward Gibbon in "The Decline and Fall of the Roman Empire"
a). TYPES OF INSURANCE DISTRIBUTORS
- Agents, Brokers, Bancassurance, Worksite
marketing etc.
Direct Distribution system
- Direct, telemarketing, internet, direct mail, call centre, etc
AGENTS –
a). Tied / Exclusive/ Captive
Closest to the customers
May not be sufficiently knowledgeable.
Might not have sold the best possible product.
Focus – the middle, upper middle and elite classes.
Must be educated, have marketing flair, attracted by high remuneration and the lure of fashionable job.
b). General Agents
Challenge of educating and training
Points to Note
Belief that older people know better
Agents will continue to be the dominant channel in Nigeria where geography and Infrastructure pose distribution challenges.
c. Independent Agent – a single company – car dealers - a no- of companies.
Face to face is the preferred method for buying life Insurance.
Independent Agent legally owns access to biz renewal
d). Corporate Agents
Low distribution cost and captive customer base
e). Aligned Financial Advisors (Tied and Independent)
Pension Agents, NHIS Agents, Stock Agents, employees of super animation funds.
Annuity Companies - (Fixed and Variable)
f). Elite Sales Team (EST)
Above the thresholds of average agent
Desires special treatment, quality advice
Degree of service above that of the normal agent.
Preferential treatment to HNW customers
Back – up Accounts officer (back – office).
Mainly Wealth management services.
2. BROKERS
Insurance, Real Estate, Travel and Stock Brokers.
Effectively address the public "mind block" about various Insurance companies.
Wholesale Brokers - Specialise in corporate and government Accounts
Retail Brokers - Extends activities to the retail market.
Surplus – lines Underwriters – Agents/Brokers
- Declined risks, high premium rate or high deductibles or exclusion risks.
c) Managing General Agents – 3rd Party Admin.
Brokers with authority to underwrite and bind cover until policy is issued.
help in claims processing and reinsurance apportionment.
U.S.A - Gramm – Leach Blily Act 1999 – Bank, Insurance companies and security firms could affiliate and sell each others Products
Nigeria – Universal Banking Act 2001 – abrogated 2013
3. WORKSITE MARKETING.
Distribution of Insurance products at the work place paid for by the employees, endorsed by the employers. It is a complex Multi – stage process.
Success depends on
a). Education
- Employees and Employers about products and
service available.
- The benefits of worksite enrolment.
- Clearly defined product and features to Brokers
and agents and support materials from the
Insurers.
b). Cost and Convenience.
Better value proposition than in the open market.
Convenience of payroll deduction
Relaxed underwriting restrictions and timing.
c). Employers Cooporation
Employers screen the underwriters and advisors.
Employers endorsement provides confidence.
Challenges
Product customization
Efficient post sales servicing
Thrives on a well – developed, well – regulated and well educated Insurance sector.
Prominent in Asia Pacific – Tata/AIG, Lombard/ICICI.
By 2030 developing countries to be home to 91% of the world’s middle class –China and India will have 44% - World bank.
4. BANCASSURANCE
a) The Concept
Significant customer base and reach.
Established customer trust
Cross – selling opportunities
Helped in Takaful distribution in Malaysia, Indonesia.
Helped in Microinsurance in India
Indonesia – 131 different products through 27 banks
Japan – 2012 – 20% of new life products
- 15% of personal non-life.
80% of Annuities.
b) Challenges of Bancassurance
Use multiple banks to reduce risk.
Lack of direct control of the sales personel.
Vision of a broader spectrum encompassing non – bank products - CBN Bancassurance circular 07/014
Weight of the prestige of "Bank partner"
Voluntary termination of the agreement.
Policy inconsistency - Universal Banking
5. SHOP ASSISTANCE MODEL – INDIA
Insurance sold through supermarkets and retail chains.
Ability to reach a wide customer base.
Mallassurance model – shopping malls, Hypermarkets, ING / Tesco.
Offers convenience, reach and personal advice.
Insurance shop – Japan – busy streets and inside
shopping malls.
- Life Plaza holdings – 143
Insurance shops and 40,000
visitors per year
a). Direct Response Companies
Direct writers originated from Mutual companies in the USA selling to members farmers, millers etc – prominent are State Farm, Nationwide, American family and Farmers, U.S Army Insurance Association. USAA
Direct response companies – use salaried employees to sell to the consumers offsite, agents use face – to – face in the clients office.
To buy Insurance plans through telephone orders.
Using internet, exclusive/tieed agents, direct response and affinity groups.
For less complex products – motorcycle Insurance
Includes agent locations, quote engines and product information.
c). Telemarketing
i) The Concept
Involves direct customer interface.
Two – way communication, immediate feedback.
Large Number of customers in one day.
Cost effective and productive medium.
Good in countries with high tele – density – Nigeria, China
Products must be easy to understand, with low monthly/ daily premium – Section 50(1) 1A, 2003.
It lacks the face to face interaction.
Cannot be used to sell complex products.
Can be used as lead generation in sales process.
Difficult market penetration.
Multiple regulatory platforms – NAICOM, NCC, CBN
Dominance by market leaders/early starters.
d) Electronic Kiosk Stand
Reaching wider customer base.
Customer enters information – Name, Gender, Type of Policy, Sum-Insured – a quote Is generated.
Customer has the option to approve the terms and make a payment.
Good for selling complimentary policies/ridders
Travel Insurance terminals placed at airports, seaports and bus terminals, petrol stations and service stations, Hospitals (Health Insurance), shopping malls, Bank ATMs.
Also good for renewing car Insurance.
Ideal in technological – knowledgeable population- Korea, Japan, Youth market in Nigeria.
e) Mobile Marketing
Requires partnership with telcos.
MTN has 64m subscribers – Nigeria 120m.
f) Internet
Young generations propensity to fulfil their needs online.
Good for simple easy to understand products, investment products, 3rd Party Auto
May require online access 24/7
g). Challenges of the Electronics Channels
Internet purchase takes some time because it is to be initiated by the client .
Requires simpler products with auto-underwriting features.
Improvements in bandwidth infrastructure very essential.
ii). Along Product Line
49.0% of New individual life sales – independent agents
41.0% of New individual life sales – Captive agents
4.0% of New individual life sales – Direct sales
1.0% of New individual life sales – others
Annuity - Individual and fixed, not variable. Annuities captives/independent Agents – 37% - LIMRA.
Independent Agents & Brokers
Commercial sales – 67% 2013, USA –
Auto – online purchase – 3.1m policies – 2012
Worksite Sales - $6.64b in 2013 – life and health – U.S.A
Life – 28%, Disability – 21%, Dental – 10%, Accident 12%, Critical Illness 10%, Supplemental medical plan 8%, Vision 5%, others – 2%
Bancassurance – Individual life
2009 - $1.263b, 2010, $1.337b, 2011 - $1.432b,
2012 - $1.621b, 2013 - $1.190b,
Cross – Country Product Distribution Initiatives
Natwest Bank – Private Health Insurance
Sainsbury’s Bank – Travel Insurance
Barclays Bank - All classes of Insurance.
B. Retail Brokers
Progressive Insurance Brokers Zimbabwe
- First Funeral Ass. plan
- Family Personal Accident Protection
Bridge water Windscreen – Windscreen Insurance
Funeral Director – Funeral Insurance
Canadian Dental Association – Dependents’ Life Insurance.
CROSS – CONTINENT EXPERIENCE
2. ABOUT MICROINSURANCE(Mi)
(i) SIGMA
Microinsurance (Mi) is Insurance for the persons with low income and irregular cash flows often ignored by the mainstream commercial and social insurance schemes.
(ii) ILO
Microinsurance is the protection of the low income people against specific perils in exchange for regular * premium payments proportionate to the likelihood and the cost of the risk involved.
(iii) IAIS
Micro Insurance is Insurance accessed by the low-income population, provided by a variety of different entities, but run in accordance with generally accepted insurance practices and funded by premiums.
Microinsurance
a). The Concept
People and business not served by commercial Insurer.
Using 3 different Distribution models:
Partner – agent model.
Provider – driven model.
Community – based mutual model.
1. Partner Agent Model.
Microfinance institution and Insurance company.
Insurance company
- Product development, Sales and services.
- Consultation while designing product.
- Maintain control over strategic operations.
- Defines risk transfer mechanism.
Partner Agent – Sales and product servicing.
- Commissions as agreed or stipulated.
All the above provide by the Underwriter
a). NGOs –
To identify and appoint micro agents Women from self-help groups – India.
- Retailers to lower Income households.
- Dairy boards, rural banks, burial
societies,
- TV/Direct sales, cell phones,
worksite.
b)Coop & Workers Unions –
- They have the trust of their people.
Concept
Islamic Insurance concept with biz conduct, regulation and supervision based on Islamic laws.
Growing faster than the conventional Insurance by 35% annually.
Attractive products and affordable
Religiously and culturally appropriate
Malaysia has the largest and most established takaful industry in the world.
b). Challenges to its Channel Maximisation
Narrowness of Sharia – compliant Investment outlets.
Shortage of human resources and expertise.
Lack of infrastructure for bancatakaful
High barriers to entry in the MCR. Use Malaysia example – low MCR, Tax incentives.
Imposition of specific model by the regulator.
- Thailand – just sharia – compliant model.
If well articulated has value proposition to both Muslims and non – Muslims.
Product bundling – health, savings, child education, retirement planning – will grow the market further
Harmonization of the Sharia interpretation of the products will help broaden the customer appeal – Kenya question.
d. Direct Revenue to NAICOM from the Initiatives. (2009-2012)
JOURNEY INTO MAXIMISING CHANNELS OF DISTRIBUTION FOR INSURANCE PENETRATION IN NIGERIA - FSS2020 - 2007, MDRI – 2009, CDSMiT - 2012
Complete Road map already put in place by NAICOM
Vision
1st in Africa, 15th in the World – 2020.
Mission
An Insurance industry that drives and protects the entire economy
MDRI Premium Target 2012 – N1.0tr
Actual 2012 – N247.5b.
Stage of Market Development 2012 – End of Early Growth. Actual – End of Dormant stage.
b). The Components of the MDRI
Sanitize, expand, modernize and standardize the Insurance Agency system – NAICOM will not licence channels, it is the agents.
Wipe out the Fake Insurance institutions.
Bridge the skill – gaps in the young Insurance Practitioners.
Build Consumer Trust and confidence in Insurance.
Adopt Risk – based supervision and solvency – focused Regulation (IFRS)
c. The MDRI Deliverables
2) Lower the Insurance Gap from 94% in 2009 to 70% in 2012.
3) Increase Insurance contribution to GDP from 0.72% in 2009 to 3.0% 2012 and Increase Premium per capital from N525.00 to N7,500 by2012.
4) Build Consumer Trust and Confidence to the level that mere exchange of Insurance documents will resolve any road – traffic dispute – 2012.
5) Make Insurance a tool of facilitating the growth of other sectors of the economy e.g. mortgage.
6) Make Insurance a tool for raising funds for projects of national development - to the extent that it will feature in the FGN Budget.
7) Provide fund for the Fire Service at the state levels from 2011 – sec 65
8. Create about 800,000 new jobs through Insurance Distribution between 2009 and 2020.
9. Establish competency framework for the Insurance practitioners.
10.Grow the Income to NAICOM from Supervisory Levies, Licencing Fees, Violations by the Public, Penalties from the practitioners reach about N100.0b/ annum by 2020.
11. Make the Insurance Premium to the operators reach N6.0trn by 2020.
12. Replace the "Lord Lugard Era" Insurance products with relevant, bundled, sector – specific, embeddable and total needs – Insurance products and develop new markets and new distribution channels.
10 Agency Types Recommended In The MDRI
Network Concept Introduced – To make a few identifiable and monitorable legal entities accountable for the activities of the Insurance Agents in Nigeria. Remember NAICOM does not license channels, only channel drivers.
1). Natural Person Agent
Independent – General Solo Agent
Sub-Broker – Brokers Agent
Risk Advisor – Underwriters Agent
2). Captive Agency
Underwriting companies who maintain agents.
3). Network Management Agency
A limited liability company floated solely to market retail Insurance Products.
4). Retail Broker
Registered Insurance Broker wishing to maintain an Agency system and no additional licensing requirement whatsoever.
5). Affiliate Agency
The Insurance dept. of a company marketing the corporate body and its staff with the aim of collecting commission.
6). Bancassurance Agency
A bank selling Insurance under its name or that of an underwriter utilizing the Insurance Agency aspect of the UB Guidelines 2001.
7). Universal Agency System – 3rd Party Administrator
A Limited Liability company floated by a person who had occupied at least E.D. position in Broking, Underwriting or Reinsurance company, handling Marketing and Technical activities on behalf of selected underwriters in a particular geographical zone.
8). Franchise Agency System
A former staff of a particular underwriter appointed by same underwriter to represent it in a particular location and bind cover.
9). Closed Agency System
Closed Business Membership Organisation (BMO) wishing to market insurance to her members only subject to engagement of qualified technical personnel e.g. ICAN, NIESV
10). Partner Agency System – Microinsurance
Any organisation (Private/NGO) with huge customer-base in the Development Insurance aspects (Micro, SME, Rural Development, Mortgage, Healthcare) engaged solely by a Network Administrator to market that segment.
Development thereafter
The Brokers kicked against the entire MDRI early 2010.
NAICOM decided to run MDRI internally in 2011.
Project transfer workshop held in Keffi between 11th and 13th Feb 2011.
In essence, Nigeria already has the roadmap on maximizing channels of Distribution and Insurance penetration. Anything done thereafter can only be a repetition under a different name.
However, the Roadmap may never be implemented.
A. Market Efficiency,
1. Nationwide Insurance Education Programme.
3. Proper Expertise of the Regulators and the operators.
4. Laws and Regulations that work.
5. Appropriate and Relevant Insurance Products – coming up.
6. Reasonable pricing of Insurance Products.
7. Strong and Trusted Dispute Resolution mechanism.
C. Market Capacity
8. Sufficient Capital/Solvency of the industry.
9. Commitment of the Regulator to Develop the Local market.
The Way Forward
About N800m will still be generated as sideline Income by NAICOM.
N6.0tr premium will still be generated by the Industry in 2020.
About N25.0b Supervision Levy will be generated by NAICOM (2015
– 2020).
The industry operators made a pledge of N300m for Insurance Education.
Massive collaboration with the Private sector and the MDAs is needed
Each Insurance company must decide where it can compete most effectively, its target market and easiest area to develop its distribution channels and capabilities.
Innovate products around trade groups and income segments using the appropriate channels.
All intermediaries cant sell all lines of business in all markets.
Agents still remain the most dominant distribution channel – older generation will prefer Agent and Bancassurance, younger generation – Internet, text message, kiosk and TV.
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